It seems like he is not exempt from capital gains tax so trying to find what would be the best solution to this.My questions are:1.

You need to negotiate with them to find a solution. 

HELOC might be a solution for taking funds out.

If the transaction is completed and recorded, there may be some documents signed at closing where both you and buyer agree to fix any errors, although I believe it's usually reserved for a missing initial or something, but may be a solution if both parties understand and agree a mistake was made. 

No landlord should tell you they have money problems and YOU are the solution to the problems.

The best solution at this point is to "fix" your ability to get loans.

Anyways we all just stating different options/solutions on the situation.

Look into @David Greene story, instead of looking into no money down solutions when he got started he did it the most common way Successful investors start out!!!

One reason I might imagine is your broker won''t let you do this, another is that you aren't aware of the subject to deal solution.  

That would probably be the easiest solution.